United States: EPA Proposes Third Phase Of Greenhouse Gas "Tailoring Rule"

On March 8, 2012, the U.S. Environmental Protection Agency announced a proposed rule representing the final phase of the Agency's three-phase "Tailoring Rule" approach to regulating greenhouse gas emissions from new and modified stationary sources under the Clean Air Act. EPA's proposal declines to extend regulation of greenhouse gas emissions to smaller sources and seeks to streamline permitting for sources that are already regulated.

The EPA previously laid out the first and second phases of the Tailoring Rule, with "Phase 1" taking effect in January 2011 and "Phase 2" taking effect in July 2011. During the first two phases, EPA established greenhouse gas emission thresholds, above which permits are required for new stationary sources and major modifications to existing stationary sources under the major source permitting requirements of the Clean Air Act's Prevention of Significant Deterioration ("PSD") and Title V operating permit programs. These thresholds were designed to limit regulation of greenhouse gas emissions to only the largest emitters.

In Phase 3, EPA considered whether smaller sources of greenhouse gases should be regulated and ultimately determined that such sources should not be regulated because state air permitting capabilities "have not improved to the extent necessary for additional sources to be brought into the system." If finalized as proposed, the Tailoring Rule would continue to apply to only the following categories of large greenhouse gas emitters:

• New and existing facilities with potential carbon dioxide equivalent (" CO₂e") emissions above 100,000 tons per year (and potential greenhouse gas emissions of at least 100 tons per year on a mass basis) would be required to obtain Title V operating permits;
• New facilities with potential CO₂e emissions of 100,000 tons per year or more (and 100 or 250 tons per year of potential greenhouse gas emissions on a mass basis, depending on the source) would be required to obtain preconstruction PSD permits;
• Existing facilities with potential CO₂e emissions of 100,000 tons per year or more (and 100 or 250 tons per year of potential greenhouse gas emission on a mass basis, depending on the source) that make changes that increase their potential CO₂e emissions by 75,000 tons per year or more, would need to obtain PSD permits; and
• Facilities triggering PSD permit requirements due to emissions of other regulated pollutants also would be required to address any potential CO₂e emissions increases of 75,000 tons or more in the PSD permit.

In addition to maintaining existing thresholds, EPA proposes to streamline the permitting process through two approaches. First, EPA proposes to increase flexibility and improve the usefulness of "plantwide applicability limitations" or "PALs" for greenhouse gas emissions. EPA proposes to allow permitting authorities to issue greenhouse gas PALs on either a mass basis or a CO₂e-basis, and to allow PALs to be used in determining whether a project should be deemed a major modification that subjects the facility's greenhouse gas emissions to regulation. Second, EPA proposes to allow issuance of "synthetic minor" permits for greenhouse gas emissions when EPA itself (as opposed to a state or local agency) is the PSD permitting authority.

EPA is expected to issue a final rule this summer.

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